I hate debt but I love using credit cards. I like to buy what I was going to anyways, pay it off in full each month and earn rewards for it. One day MJ and I were out having a drink. I was already in a good mood because it was Friday night but I got an e mail telling me I earned $13 in cash back bonus and I got ridiculously excited. He rolled his eyes at me but, it's free money! Of course it's exciting. It doesn't work if you are not 100% clear on your budget, have the potential to get into trouble with credit cards or are disorganized when it comes to paying bills. One late payment or one month of interest kind of negates what you are hoping to get out of it but this is what works for me.
1// I focus on one card at a time. It should be one with no annual fee and no expiration on points so it's easy to keep up with. The one I use most often has has no annual fee and I get 1% back on all purchases. I get 2% at restaurants/gas and up to $250 per month/$3,000 annually (then 1% after that). For a while Discover was my primary card, but I have other cards with good points programs as a back ups if I want to keep the spending separate like for vacation, a particular purchase or if a retailer doesn't accept Discover.
2// I Spend only what I can afford and pay it off every month. I use a credit card for gas and day to day expenses and pay it off each month just to get the points. The key for me is to know exactly what the bottom line figure that I can spend and don't exceed it. If I know my max and don't exceed it then I know I can pay it off at the end of each month and avoid interest. To do this, you must also know your budget and you can't be late on a payment either.
3// I use credit cards for large purchases even if I have the money. Whenever we have had big purchases for the house we put it on a credit card then pay it off even if we have the money just to rack up the points. It really sucked paying $400 for a kitchen sink but it helped ease the pain to know I'm getting something back for it even if it's only $4.00. It adds up.
4// I take advantage of partner retailers for increased cash back rates. Any time I make a purchase online I check first to see if the retailer is listed. If I log in and make the purchase through their link I can get between 5% and 15% cash back on something I was going to buy anyway. They have a lot of great places you are probably already shopping at like Groupon and DSW. That's how I got $13.00 just for buying my contacts at 1-800 Contacts.
5// I Sign up for special additional cash back offers. Two of my cards offer different promotions throughout the year when they offer 5% in different categories like gas or grocery stores. If I get an e mail about a promotion I sign up right away. I earned enough for a $20 credit in just 3 months. Maybe that doesn't sound like much but it's free money just for going about my business using that card.
6// I don't let the points dictate everything. I use the card that makes the most sense. It would make me crazy if I were constantly obsessed with getting more points every single time. Sometimes it makes more sense for me to use other cards and I'm okay with that. I left my Discover at home when we went to Europe and just used my MasterCard so I could carry one card and not have to worry about the limited retailers that accept Discover. If I want to use a coupon at Macy's and it requires me to use my Macy's card I'll use my Macy's card. If I'm at Target I use my Target card because they offer 5% instant cash back savings on all Red Card purchases. If I'm buying groceries I use our joint debit card that has no points associated with it because that's the stream of money set up for that. This is supposed to be easy so I don't want to complicate it by having to remember to transfer money later.
7// I let the points stack up over time and then cash in. With Discover I can redeem the points as cash on Amazon, as a credit on my card or in gift cards. They have a huge selection of gift cards to choose from and some of them offer the the gift card at discounted prices so you get more for less then what you pay for it. They also have big ticket items like airfare and other household products and electronics. I earned enough for a free airline ticket once. It was awesome to get that airline ticket but it took so long that now I focus on smaller rewards. I like that instant gratification of getting things faster even if it's in smaller increments instead of waiting years and years. I like to save them for vacation. When we went on our honeymoon to Oahu in 2010 I used my cash back bonus to get a $100 gift card which I used as spending money. Mj was racking up points on a card of his own at the time and it paid for both of our airline tickets. I was able to use $36 cash back bonus towards a pair of shoes I bought on Amazon. I also had $60 in cash back earnings when we went to Maui last year, a $50 card when we went to New York and I have enough points from MasterCard for a $50 gift card.
I've been doing this for a while and I'd feel like I was throwing away extra money not to do it at this point. Sometimes I feel like I'm getting away with something. The credit cards are only offering incentives like this because they want me to stick with them, use the card and pay them interest and possibly any other fees they can get. For about two seconds I felt bad that they pay me without getting anything in return but they should actually be ashamed of themselves for how much money they get out of people. They have some really sneaky rules that almost got me.
I took advantage of a 0% interest balance transfer offer with Discover and then ended up using the card for a few purchases because I was buying something from partners where I'd get that extra cash back. I paid off those purchases in full at the end of the month and was shocked to find an interest charge on my statement. Normally, there is a 30 day interest free grace period on new purchases. Turns out, if you carry a balance as a result of a balance transfer you lose your grace period on any purchases thereafter. The minute you charge something it begins accumulating interest so it didn't even matter that I'd paid it in full by the due date. I'm sure it was in the fine print somewhere but that is a ridiculous obscure rule and it's clearly to take advantage of people that might still need to use their card. I'm in good standing so I got them to waive the interest charge and stopped using it, but how sad is that?
I don't feel sorry for credit card companies at all and I plan to continue to make money off of them as long as they'll let me. If you have questions on the specific cards I use let me know.
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